GOVERNMENT PROPERTY ADMINISTRATOR v. CHINAWAY SHIPPING LTD

HCA 3969/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3969 OF 2001

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ASSESSMENT OF DAMAGES

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1. This is an assessment of damages following the entry of interlocutory judgment, subsequently amended, against the defendant for damages to be assessed. The facts giving rise to the suit and to the assessment are briefly thus.

2. On 21 September 1999, the plaintiff, Government Property Administrator, entered into a tenancy agreement with the defendant, Chinaway Shipping Limited, by which a ferry pier at the Hong Kong Convention and Exhibition Centre was let to the defendant for a term commencing 27 August 1999 and expiring on 31 March 2002. The reserved monthly rental payable quarterly and in advance was $45,000 per month exclusive of rates. The purpose of the lease was to enable the defendant to operate harbour cruises and/or a floating restaurant business.

3. The defendant was in breach of the terms of this tenancy agreement, as is plainly pleaded in the statement of claim upon which the interlocutory judgement was entered. On 12 August 2000, the plaintiff served a one-month notice to quit, requesting the defendant to deliver up vacant possession of the pier by 12 September 2000. This evidence came from the third witness, Mr Albert Lai, who also produced the notice to quit.

I am satisfied on the evidence that Mr Lai was fully apprised of the events leading up to the issue of the notice to quit, and that the termination was clearly justified for non-performance and non-observation of crucial terms of the lease. There was ample basis for the notice to have been issued. The defendant refused and/or failed to deliver up vacant possession following the expiry of the one-month notice.

4. On 8 November 2000, the plaintiff requested the defendant to undertake certain repairs and reinstatement works to the pier. This did not result in any positive action being taken by the defendant to put right the state of affairs that had caused the notice to quit to be issued in the first place. The defendant was made fully aware that in default of steps being taken to remedy the damage to the pier or failure to carry out reinstatement work, the plaintiff would himself undertake those repairs and reinstatement work, and the costs thereof would be sought from them. In the event, the evidence disclosed that considerable sums of money had been incurred by the plaintiff putting right those various matters.

5. On 6 December 2000, the plaintiff notified the defendant of his intention to repossess the pier on an "as is" basis - in other words, in its state of disrepair. The defendant was informed that the repossession was to be without prejudice to the plaintiff's claim for damages. Repossession occurred subsequently on 7 December 2000.

6. The plaintiff was duty bound following the breach of contract by the defendant to mitigate his loss, and this he studiously and expeditiously did by looking for alternative lessees to take up the pier. This was achieved by way of tender and on 1 August 2001, the ground floor only of the pier was re-let at a higher rental of $75,000 per month. The new lease was for the use of the pier for scenic cruises only. It did not provide for the running of a restaurant business there. As it turned out, because of the breach of contract and the subsequent successful re-tender, the plaintiff was able to achieve a higher rental. Accordingly, damages for future loss of rental income did not figure in the assessment of damages.

7. On 5 September 2001, the writ was issued by the plaintiff for damages. This resulted in interlocutory judgment in default of notice of intention to defend, with damages to be assessed being entered on 1 March 2002. The interlocutory judgment order was amended on 27 November 2002. The plaintiff summoned three witnesses to testify at this assessment hearing. Numerous documents were produced and the witnesses' statements were adopted as their evidence-in-chief. There being no contradictory evidence available to this court, and having considered the evidence adduced in these proceedings, I am satisfied that the plaintiff's evidence should be accepted in total.

8. Basically, the plaintiff's claim falls under four separate heads. These were repair and reinstatement costs, loss of rental income, outgoings and miscellaneous costs. Turning initially to the first head of damages - that is to say, repair and reinstatement costs - the first item up for consideration is the bill for $35,950 that had been incurred in respect of the clearing away of debris and the overall cleaning work and labour costs for tidying up the pier that had been left in quite a poor state when the defendant lost possession of the pier. The evidence in support consists of a statement of account, invoices and log sheets which have been produced. I accept the veracity of those documents. The plaintiff has relied on clauses 2(z) and 4(s)(i) of the tenancy agreement in pursuit of this head of damage. Clause 2(z) reads:

"If so required by the landlord, on the termination of this Agreement to reinstate at the Tenant's own expense in all respects to the satisfaction of the Landlord, the Premises to its former state as at the commencement of the tenancy agreement hereby created and deliver up vacant possession of the Premises to the Landlord to his satisfaction, fair wear and tear accepted."

9. Clause 4(s)(i):

"the Landlord or their duly authorised officers or agents referred to in this Agreement shall or may carry out works of any description on the Premises or any part thereof or outside the Premises (whether on behalf of the Tenant or on the failure of the Tenant to carry out such works or otherwise) at the cost of the Tenant or that the Tenant shall pay or repay to the Landlord or their duly authorised officers on demand the costs of such works, such costs shall include such supervisory and overhead charges as may be fixed by the landlord or his duly authorised officers."

10. It is plain that the contractual terms referred to wholly justified the recovery of these costs. If authority is necessary, one needs refer only to the Court of Appeal decision in Chang Tung Lan v Kamshan Holdings Ltd [1999] 4 HKC 303, to which Mr Ho, Senior Government Counsel for the plaintiff, has made reference. In that case it is obvious that the court had allowed by way of damages to the plaintiff a small sum of $2,500 that had been spent in connection with the removal of debris and other assorted detritus that had been abandoned or left behind by the tenant in that case. I therefore allow the sum of $35,950 under this head.

11. Under the same head of damage, there is a claim for timber fenders repairing costs at $90,000. The provisions relied on by Mr Ho are clauses 2(f) and 2(q) which I will not set out herein. I have read those clauses and I am satisfied that they do provide a contractual basis to the plaintiff for recovering the costs incurred in putting right the damage and the very serious wear to the timber fendering system at the pier. The evidence of the damage and the costs of repairing the wooden fenders are shown in the photographs and the allocation warrant which have been produced. I make reference to paragraph 1084 of McGregor on Damages, 16th Edition. This and other passages have been referred to by counsel for the plaintiff. It reads:

"Third, if the plaintiff can establish that his loss consists of or includes the costs of doing work which in breach of contract the defendant has failed to do, then he can recover as damages a sum equivalent to that cost. It is for the plaintiff to establish this: the essential question is, what is his loss."

12. The evidence fully justified the recovery of this aspect of the claim. I therefore allow the sum of $90,000. The final component of the first head of damage is the costs for reinstatement of the pier. This amounted to by far the largest single quantum in this assessment. A sum of $1,187,648.90 has been claimed. The certificate Exhibit P16 supports this item. Clauses 2(z) and 4(s)(i) were pleaded and relied on by counsel for the plaintiff in support of this claim.

13. As far as the evidence is concerned, three allocation warrants have been produced. They show how this amount has been arrived at. Generally speaking, for breach of covenants to land resulting in damages and the need for reinstatement, the court would assess the claim with reference to the diminution in the value of the reversion. However, the authorities have indicated that the measure of damages may, in appropriate circumstances, be assessed in terms of the proven costs of reinstatement to the land. See paragraphs 1090 and 1093 of McGregor on Damages.

14. The plaintiff may be entitled to be awarded damages premised on the costs of reinstatement where the circumstances justify the costs of the remedial action having been incurred. In the English case of Eyre v Rea [1947], 1 KB 567, such a measure of damages equated to the costs of reinstatement had been adopted. In that case, the assignee of a lease had converted the premises into five flats in breach of covenant to use as a private dwelling house. The lessor successfully claimed for forfeiture and damages. It was argued by the errant lessee that the lessor had now obtained a property that was of greater value because of the breach of covenant on his part. Because of the wrongful conversion, it was said that the lessor could achieve a much higher rental income and therefore would suffer no damages. This argument was rejected. It was held that the plaintiff was entitled to the costs of restoring the house to an unconverted one, and in addition, to the rent loss for the period it would take for the work to be achieved. If local authority is required, one needs but refer only to S C Chow & Associates Ltd v Chow Kit Ming (t'a Modern World Printing Design Company) [1997] 2 HKC 96. I therefore am satisfied that the third component under this head of claim is competent. I allow the amount sought.

16. Turning now to the claim for loss of rental income, counsel relied on clauses 2(a) and 4(c) and to the schedule dealing with the reserved rent in the tenancy agreement. The rental income that has been lost is clearly demonstrated on the evidence and it totals $349,838.70. I have no difficulty with the evidence in this regard or indeed with the legal basis for the recovery of this item. Counsel's written submissions have been most helpful in this regard. I accept his argument in full.

17. I also accept that there is clear legal basis for the recovery of rent for the periods in question. For completeness I should mention that the plaintiff was seeking loss of rental income for the period from 1 October 2000 to 7 December 2000, for which credit was given to the defendant, and for a second period after 7 December 2000 up to and including 31 July 2001, when the ground floor of the pier was re-let to a third party. I award the sum claimed in full.

18. Outgoings. There are several elements in this claim, the first being rates. Under clause 2(d), the plaintiff is rightly entitled to recover rates that have not been paid, it being plainly the duty and obligation of the defendant during the currency of the tenancy agreement to discharge all existing and future rates, taxes, charges, etc. The demand note has been exhibited and shows that the quantum for rates comes to $29,721.00. This amount I shall allow without further ado.

19. The second component under this head is management fees and security services plus labour. This amounts to $105,455.50. The contractual terms, namely clauses 2(d) and 4(s)(i) justify the recovery of this head of claim. A statement of account, invoices and ledgers were produced. They support the amount claimed under this head, which I shall also allow.

20. Finally, under this head of claim is the costs for electricity of $13,181.00. The claim is pursued under clause 2(c) of the tenancy agreement, which requires the defendant to pay all charges in respect of electricity and water supplied to the premises, which the defendant failed to do, as evidenced by the statement of account and relevant bills and vouchers. This amount is also allowed.

21. The final head of claim is for miscellaneous costs. These cover two items, re-tendering costs, including advertising and labour, of $76,507.00. This particular sum was incurred in respect of the tender which turned out to be ultimately successful in securing another tenant for the pier at a much higher reserved rental. This amount of $76,507.00 is supported by the statement of account and related invoices that have been produced, which I accept in full. I see no reason why this amount should not be recoverable, it being spent by way of a bona fide act of mitigation on the part of the plaintiff.

22. The second element under miscellaneous costs are legal costs of $18,000.00. Counsel made reference to S C Chow & Associates Ltd, supra. This amount was incurred in obtaining legal advice following the defendant's breach from the Department of Justice. In my considered view, the better view to take of this claim, which is recoverable, is that it should be sought as the general costs of prosecuting the claim rather than as a head of damage. For that reason, I would not accede to this amount of $18,000. It makes little difference to the plaintiff as I am prepared to award the costs of the suit and of the assessment to the plaintiff against the defendant in this case.

23. In sum, the damages which I have considered, assessed and now allowed to the plaintiff against the defendant, are as follows:

1.	Debris cleaning and cleaning work plus labour	35,950.00
2.	Timber fendering repair costs	90,000.00
3.	Reinstatement costs	1,187,648.90
4.	Loss of rental income	450,000.00
5.	Rates	29,721.00
6.	Management fees, security costs, security services plus labour costs	105,455.50
7.	Electricity	13,181.00
8.	Re-tendering and associated costs	76,507.00
	Total	$1,988,463.40

24. There shall be judgment for the plaintiff against the defendant for this quantum of damages, on which the plaintiff will also be entitled to interest from the date of the issue of the writ, at judgment rate, until full payment. The plaintiff shall have the costs of the action and of the assessment, taxed if not agreed. Exhibits to be returned on application, as requested.